a 
LIMIT CURRENCY OR CREDIT ? 381 
of the Big Five appeared on the steps of the Treasury dressed in 
white sheets and prepared to kiss the toe of the boot of the 
Financial Secretary. The list would soon be closed ; for the 
banks are liable to pay their customers on demand at least ten 
imes as much legal tender money as the Government and the 
Bank of England are liable to pay the banks at any one moment. 
Those who live in glass houses cannot afford to throw stones. 
b) The other reason is a little more difficult to deal with in 
onsequence of the wide prevalence of the very curious delusion 
hat when a bank lends money on Treasury bills to the Govern- 
ment, this enables it to lend more money to other borrowers, so 
that the more money the Government borrows in that way, the 
more the banks can lend to their customers, with the result that 
these customers will spend more money, which will raise prices 
and draw out notes because the higher price-level requires a 
larger holding of notes by each individual and institution. Con- 
versely, it is supposed that when the Government reduces the 
Treasury bills outstanding by paying some off without issuing 
an equal quantity of new ones, it cuts down the ability of the 
banks to lend to their customers, diminishes those customers’ 
money-spending, lowers prices, and pulls notes into the Bank 
of England, which pays them in for cancellation. 
[t may seem quite incredible that anyone can really believe 
that when a Government borrows money from a person or body 
of persons (whether called a “bank” or not), that person or 
body is thereby rendered more able to lend money to other 
borrowers ; and conversely, that when the Government repays 
what it has borrowed, the repaid creditor is rendered by the fact 
of repayment less able to lend to other borrowers. Yet that this 
has been believed in the very highest circle of British financiers, 
at any rate not very long ago, is nearly proved by the fact that 
Mr. Austen Chamberlain, when Chancellor of the Exchequer, 
with access to all the best advice, complained pathetically that 
he more he repaid the banks what they had lent during the 
war, the more they lent to their customers.! He had evidently 
been told that if he repaid the banks they would be able to lend 
less in other directions, and had imagined it to be true. 
o argue against such an absolutely groundless delusion is 
unnecessary, but it may perhaps be useful to explain that it 
L_See above. pn. 225 
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